Outlook positive for bank stocks amid bets of policy easing

Researchers

ANALYSTS are generally bullish on bank stocks this year amid expectations of the central bank to ease monetary policy further in order to support economic growth.

The barometer Philippine Stock Exchange index (PSEi) gained 0.5% in the fourth quarter of last year, a reversal from the 2.8% decline in the third quarter and slower than the 2.6% in the fourth quarter of 2018.

However, the period saw nine of the 14 listed banks posted quarter-on-quarter losses on their share prices. The Philippine National Bank (ticker symbol: PNB) saw the biggest drop at 20.9%, followed by Philippine Savings Bank (PSB, -15%), Rizal Commercial Banking Corp. (RCB, -13.2%), Bank of the Philippine Islands (BPI, -5.5%), Asia United Bank (AUB, -5.2%), UnionBank of the Philippines (UBP, -2.4%), Philippine Business Bank (PBB, -2.3%), Philippine Bank of Communications (PBC, -1.4%), and Security Bank Corp. (SECB, -1%).

On the other hand, BDO Unibank, Inc. (BDO) saw its share price rally the most with 10.5%. Other gainers during the period include Metropolitan Bank & Trust Co. (MBT, 9.5%), East West Banking Corp. (EW, 1%), Philippine Trust Co. (PTC, 0.8%), and China Banking Corp. (CHIB, 0.2%).

Despite this, analysts said bank stocks are among the best bets coming into this year.

In an e-mail, PNB Securities, Inc. Senior Equity Research Analyst

BANKS

Wendy B. Estacio and Junior Equity Research Analyst Marco R. Mauleon noted the financials subindex — which included the banks — outperformed the PSEi for the most part of November following the release of thirdquarter gross domestic product (GDP) results.

“Further reduction of the universal and commercial banks’ (U/ KBs) reserve requirement ratio (RRR) to 14% [effective December 2019] also contributed to positive investor sentiment. We believe investors have digested upbeat results from banks under

BDO

MBT

BPI the Financials Index in the first nine months of 2019 with an average parent net income growth of 28.3% year on year,” they said.

Likewise, Unicapital Securities, Inc. Research Head Justin Lawrence J. Tembrevilla said the Bangko Sentral ng Pilipinas’ (BSP) move to reduce the RRR for local bonds issued by banks and quasi-banks to 3% from 6% previously made bond issuances “more conducive for banks” to beef up their funding base, compared to normal deposits that have a reserve requirement of 14%.

SECB

CHIB

PNB

The fourth quarter saw rates for overnight reverse repurchase, as well as overnight deposit and lending unchanged at four percent, 3.5%, and 4.5%, respectively. On the other hand, it recorded a 200-basis point (bp) reduction in cumulative RRRs that took effect in November and December.

The BSP has also reduced the RRR for bonds issued by banks and quasi-banks by 300 bps to three percent from six percent previously. The central bank said this move, which took effect last November, complemented its streamlining of rules and requirements

UBP

EW

RCB for banks’ and quasi-banks’ issuance of debt instruments,

Meanwhile, the country’s U/ KBs booked a cumulative P211.57billion net income last quarter, 32.3% higher than the P159.93 billion posted in the fourth quarter of 2018, BSP data showed.

Net interest margin (NIM), the ratio that measures banks’ efficiency in investing their funds by dividing annualized net interest income to average earning assets, improved to 3.44% in the fourth quarter from 3.43% in the third quarter and 3.17% posted a year ago.

AUB

PBB

PSB

“We are reiterating our recommendation to overweight selected banking stocks as valuations continue to be attractive and the low interest rate environment should support the improvement in net interest margins with the cheaper funding costs,” said First Resources Management and Securities Corp. Officer-in-Charge of Trading and Research Charlene Ericka P. Reyes.